House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)

Chapter 23 Amendments relating to Garnishee Notices

[Clause: 119, 120]

Overview

Provides that, in relation to building society shares, only withdrawable shares (and not permanent or fixed shares) in the capital of a building society can be garnisheed from such a society.

Summary of proposed amendments

23.1. Part 10 of the Bill will amend various taxation laws so that, in relation to shares in building societies, the Commissioner may only garnishee those shares known as withdrawable shares. This will prevent the Commissioner from garnisheeing permanent or fixed shares in building societies.

Background to the legislation

What is garnisheeing?

23.2. The garnishee provisions in the tax law allow the Commissioner to collect outstanding taxes from persons who owe or may owe money to the taxpayer concerned (see, for example, section 218 of the Income Tax Assessment Act 1936) . In other words, the Commissioner may collect taxes owed by a taxpayer from funds owed to that taxpayer by another person. This is done by the Commissioner giving notice in writing to the person who owes or may owe money to the taxpayer.

Why should only withdrawable shares be garnisheed?

23.3. Building societies generally have two classes of shares:

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shares of a class called permanent or fixed shares; and

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withdrawable shares.

23.4. Permanent or fixed shares in a building society are similar to shares in other companies in that the capital cannot be withdrawn by the member and is available only on redemption or cancellation. These shares are similar in nature to company shares but are not listed for quotation on a Stock Exchange. Withdrawable shares, on the other hand, are akin to deposits in savings bank accounts and are generally withdrawable under the rules of a society.

23.5. Prior to 1984, the Commissioner could not garnishee shares held in the capital of a building society, including withdrawable shares. In 1984, the tax laws were amended to allow the garnishee of shares in a building society except those listed for quotation on a Stock Exchange. By way of comparison, money held in a savings bank account can be garnisheed while shares in a company cannot. This amendment was intended to place withdrawable shares in building societies and money held in savings bank accounts in the same position in relation to the garnishee rules.

23.6. Permanent or fixed shares in a building society and company shares are similar in nature. Accordingly, they should be in a similar position to company shares in relation to the garnishee rules. The 1984 amendments included permanent or fixed shares among those building society shares that could be garnisheed by the Commissioner. This consequence was not the intention of those amendments.

23.7. The Bill will, therefore, amend the garnishee provisions in most tax laws to provide that only withdrawable shares in building societies can be garnisheed by the Commissioner.

Explanation of the proposed amendments

23.8. The garnishee rules in the tax law which relate to shares in building societies will be amended to provide that withdrawable shares only can be garnisheed from a building society. This means that permanent or fixed shares in a building society will not be subject to garnishee.

23.9. Withdrawable shares are those shares in the capital of a building society where the share is withdrawable by the person who owns it. In this way "withdrawable shares" has its ordinary meaning regardless of any special meaning given to that term in State or Territory legislation relating to building societies.

23.10. The following provisions are affected by this amendment:

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subsection 99(9) of the Fringe Benefits Tax Assessment Act 1986;

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subsection 218(6) of the Income Tax Assessment Act 1936;

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subsection 36(4) of the Pay-roll Tax (Territories) Assessment Act 1971;

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subsection 91(9) of the Petroleum Resource Rent Tax Assessment Act 1987;

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subsection 38(6) of the Sales Tax Assessment Act (No.1) 1930;

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subsection 81(9) of the Training Guarantee (Administration) Act 1990; and

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subsection 54(3A) of the Wool Tax (Administration) Act 1964.

23.11. The amendment of these provisions will apply to garnishee notices issued after the commencement of clause 120 of the Bill (see below).

Commencement date

23.12. The amendments made by Part 10 will commence from the date that the Bill receives the Royal Assent.

Clauses involved in the proposed amendments

Clause 119 : changes the garnishee rules relating to shares in building societies.

Clause 120 : provides for the application of the amendments made by clause 119.